Monday, 5 June 2017

Philippines revises rules for claiming tax treaty benefits

On 28 March 2017, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (RMO) No. 8-2017, which provides revised procedures for nonresident recipients of Philippine-source income to claim reduced withholding tax rates on dividends, interest and royalties under the Philippines’ tax treaties. The revised guidance, which will apply as from 26 June 2017, generally will supersede guidance issued in 2010 (RMO No. 72-2010) for purposes of the application of reduced treaty rates on these types of income.
Under the revised guidance, a nonresident will be required to submit a Certificate of Residence for Tax Treaty Relief (CORTT) form instead of a tax treaty relief application (TTRA) to claim reduced treaty rates on dividends, interest and royalties. The nonresident recipient of the income and the Philippine payer will have to comply with the following procedures:

  • The nonresident will have to submit a completed CORTT form (or a “consularized” certificate of residence with Parts I and II of the CORTT form) to the withholding agent/income payer before the income is paid or credited.
  • The withholding agent/income payer will have to file specific forms (Forms 1601F and 1604CF) with the BIR and pay the withholding tax due.
  • The withholding agent/income payer will have to submit the original copy of the CORTT form to the International Tax Affairs Division of the BIR and the Revenue District Office within 30 days after payment of the withholding tax.

The revised procedures will apply only to dividends, interest and royalties, and not to other types of income, such as business profits, income from services, etc., which remain subject to the procedures under RMO No. 72-2010 that require the income recipient to secure and file a TTRA, together with numerous required documents, before the first relevant taxable event.
Nonresidents that submitted TTRAs to the BIR before the effective date of the new guidance can benefit from reduced treaty rates, but the BIR will perform a compliance check. If the relevant certificate of residence is not included in the submitted documents, the withholding agent/income payer will be requested to submit the documents.
The new guidance will apply 90 days after its issuance to give nonresident recipients of Philippine-source income time to secure the required CORTT form or consularized certificate of residence from their countries of residence.

Source: Deloitte